Air Products held a conference call to discuss their third quarter 2023 earnings results. Seifi Ghasemi, Chairman, President, and CEO, was joined by Dr. Samir Serhan, Chief Operating Officer, Melissa Schaeffer, Senior Vice President and Chief Financial Officer, and Sean Major, Executive Vice President, General Counsel and Secretary. The call was subject to copyright, and the earnings release and slides were available on the Air Products website. Various financial measures were discussed, such as earnings per share, operating income, operating margin, EBITDA, EBITDA margin, the effective tax rate and ROCE. These measures were referring to adjusted non-GAAP financial measures, and reconciliations were available on the website. Seifi Ghasemi then took over the call.

Seifi Ghasemi thanked everyone for joining the call and discussed Air Products' strong organic sales growth and resilience. He highlighted Air Products' commitment to providing customers with efficient and sustainable products and services, as well as their plans to lead the way in decarbonizing heavy-duty transportation and industry. He also discussed safety performance and their management philosophy of striving for zero incidents and accidents.

Air Products is committed to following the principles outlined in the slides and has seen significant growth in earnings per share and dividend returns in the last nine years. The company is also proud of its 40 year record of dividend increases and has improved its EBITDA margin significantly since the current Chairman, President, and CEO took office. The two fundamental pillars of the company's growth strategy are also highlighted.

Air Products reported double-digit earnings per share growth in the last eight quarters, largely due to their resilient core industrial gas business. They are also working on low-and zero-carbon hydrogen projects to help decarbonize the transportation and heavy industrial sectors. Their NEOM Green Hydrogen joint venture achieved financial close in May and was two times over-subscribed, demonstrating confidence in the project. In comparison to last year, volume increased 3%, with a 10% increase in merchant price and a 4% price gain overall. Declining natural gas costs in Europe and the Americas reduced energy cost pass-through to their on-site customers.

In the third quarter, sales decreased by 11%, but profit and margins were unaffected. EBITDA improved by 12% due to strong pricing and equity affiliate income, and ROCE increased to 12%. GAAP earnings per share were $2.67, but excluding two non-GAAP items, adjusted earnings were $2.98, up $0.40 or 60%, driven by strong pricing and higher equity affiliate income. Price and volume, net of variable costs, contributed $0.52 and $0.09 respectively.

The company has generated $3.2 billion of distributable cash flow over the last 12 months, with $1.5 billion of that going towards dividends to shareholders. They have made significant progress in developing and deploying capital since 2018, with an estimated $30 billion available for investment over the next 10 years. The majority of the investments will be focused on the energy transition, with an $18 billion backlog and $11 billion of projects already committed.

Dr. Serhan discussed the improvements across their businesses in the fiscal third quarter, as well as providing an update on their major projects. He highlighted the successful completion of the Jiutai gasification project and the Gulf Coast ammonia project, both of which were completed without any lost time incidents. He also mentioned the $1 billion acquisition of the natural gas-to-syngas plant in Uzbekistan.

This paragraph discusses the acquisition of two ATR and POX technologies for the production of blue hydrogen. The Americas segment saw an 18% increase in EBITDA, driven by higher price and volume. The Asia segment also saw an increase in EBITDA of 10%, despite a 5% negative currency impact and higher energy costs. The increase was due to positive price and volume.

The Europe segment saw an increase in EBITDA of more than 20%, driven by pricing actions. Merchant price increased 10%, and volume was up modestly due to better onsite, particularly in hydrogen. The Middle East and India segment saw an increase in sales due to merchant volume and price, however increased costs had a negative impact on operating income. The Jazan project, closed in mid-January, contributed to equity affiliate income. Corporate and other segment results were not discussed.

Air Products' third quarter results exceeded their previous guidance, and they have raised their fiscal year 2023 guidance from $11.30 to $11.50 to $11.40 to $11.50 earnings per share. For the fourth quarter of fiscal year 2023, their guidance is $3.04 to $3.14, up 7-10% over last year, with a CapEx of $5-5.5 billion. Their people are passionate about helping to solve energy and environmental challenges, and their commitment and motivation is driving their performance in their core industrial gases business, even with a soft economic backdrop.

Seifi Ghasemi provides a 10-year view of Air Products' future capacity and capital allocation processes. Ghasemi states that a significant part of this investment will likely go to the United States due to the opportunities created by the IRA. The Board is currently developing different projects and Air Products is participating in them.

Seifi Ghasemi is asked about the performance of the Jazan 2 ramp, which began in January, and he turns the question over to Dr. Serhan, Chairman of the company running the facility. Dr. Serhan reports that everything is going as planned since the group took over the assets, with the facility supplying power to the grid and products such as hydrogen and steam. Next, David Wong asks Ghasemi about the sustainability of Europe's strong margins, to which Ghasemi responds.

Seifi Ghasemi asked Melissa Schaeffer to answer a question about the corporate costs for the quarter, which were higher than the prior year. She explained that the additional contribution from the sale of equipment was part of the increase, as well as increased investment spending. Europe has been dealing with challenges such as war and energy cost fluctuations, but some segments are doing better than last year, such as electronics and chemicals. Construction is still challenging, which has impacted the package business.

Seifi Ghasemi and Samir Serhan discuss the increased demand for hydrogen across their organization. They note that their biggest network in the U.S. Gulf Coast is fully utilized and that there is also demand for lower carbon and hydrogen for renewable diesel refinery. Additionally, they have seen some activity picking up in their Rotterdam pipeline system.

Seifi Ghasemi of NEOM has announced plans to build three terminals in Europe (Hamburg, Rotterdam, and Immingham) to bring green ammonia into the ports and sell it for mobility and industrial applications. They are also looking into building a terminal in California to meet the demands of low-emission vehicle regulations. Furthermore, there is potential demand for green hydrogen in the US and Korea, as well as blue hydrogen in Japan.

Seifi Ghasemi and Samir Serhan discussed the conversion of an existing U.S. hydrogen plant from gray to blue. Ghasemi mentioned that they are working on such a project and are talking to customers, but did not want to give an exact timeline. John McNulty asked about the Uzbek project, inquiring about the timing of it and the expected EPS contribution for 2024.

Seifi Ghasemi and Samir Serhan discuss the returns for the Uzbek project, which has the largest air-to-refrigeration (ATR) units in the world. They expect the project to contribute to the company's bottom line in 2024, with a contribution of around $0.35 per share. They also discuss the Edmonton project, which is coming online next year, and whether it is sold out based on the contracts they have locked up.

Seifi Ghasemi and Samir Serhan discussed a contract with Imperial Oil, part of Exxon, for products to be sold out of a project. Seifi Ghasemi noted that they have visibility for where the products will be sold and expressed confidence that they will be able to sell all of the product. Samir Serhan added that Imperial Oil is the anchor customer and that the products will go into existing pipeline systems. Seifi Ghasemi concluded by telling John McNulty to have patience as they will disclose more information at the end of October.

Seifi Ghasemi and Samir Serhan discussed the Canada Blue Hydrogen project, which they are committed to supplying hydrogen to IOL when their plant comes online. They also have existing customers who are increasing their demand for hydrogen. They also discussed the SaaS plant, and the project costs which include the brand.

Seifi Ghasemi and Melissa Schaeffer are responding to a question from Josh Spector about the returns of the Canadian government project. The gross number is 1.6 billion and the net number after subtracting the CAD 475 million from the Canadian government is 1.1 billion. The return is based on the net number and the project is subject to the issuance of the permit by the state of California. Samir Serhan adds that they expect to receive the construction permits by the end of the year.

Seifi Ghasemi and Samir Serhan discuss the blue ammonia project that their company is building in Louisiana. They note that the cost of the project may be higher than expected due to inflation, labor shortages, and other factors. They also mention that the scope of the project is still under definition and that they are considering various options in terms of the final scope, such as the amount of hydrogen that will be put in the pipeline and how much will be converted to ammonia. They also mention that supply chain disruptions and record inflation rates may affect their ability to deliver the project.

Seifi Ghasemi comments that many people may not understand the complexities of blue and green ammonia projects and may overestimate their potential. He cautions that not everyone who is interested in participating in the energy transition can become a supplier of blue or green hydrogen without having prior experience in the field. Ghasemi states that he and his company have been in the hydrogen business for 60 years and that they understand the complexities and challenges of such projects.

Seifi Ghasemi pontificates on the current macroeconomic situation in China and Europe, noting that much of their business in China is on-site and therefore more stable. He states that the future of Europe is uncertain and dependent on the weather and energy costs, and the company is taking steps to prepare for any potential downturns. Samir Serhan adds that Europe has a significant amount of merchant business compared to other regions.

Seifi Ghasemi discusses Europe's commitment to green hydrogen, noting that the argument is to make the leap to green directly rather than transitioning through blue hydrogen. He notes that the European Commission has approved €2.2 billion for the Tyson Group to use green hydrogen, showing the direction Europe is taking.

Seifi Ghasemi explains that it is difficult to compare Air Products' results to their competitor Denbury's because they have different strategies and the previous year Air Products had better pricing. He also mentions that Air Products claims to have a more efficient process of dissociating hydrogen with a 10% loss rate rather than 20%.

Seifi Ghasemi discusses the company's focus on being a green energy growth company and their strategy of investing in the future to increase volume growth. Samir Serhan explains how the company has developed a hydrogen production process that is very efficient, with single-digit loss.

Seifi Ghasemi concluded the call by thanking the participants for their interest and questions and expressing his hope that the fourth quarter results will be better than the guidance given. He also reiterated his pride in the team and their technology, which he believes will give them a competitive advantage.

The operator thanked the participants for their participation and wished them a great day before concluding the call.

This summary was generated with AI and may contain some inaccuracies.